What Will Our Candidates’ Policies Mean For You?

In a presidential race lacking almost everything other than drama, it can be a little difficult to know what exactly the election of either Mr. Trump or Mrs. Clinton and their policies will mean for your financial future. I’m sure if either candidate could get past discussing their opponents flaws, we would learn a bit more. Unfortunately, with one day until the election, we have yet to really see that.

I’ll be honest, I have my own opinions here. But, I’m going to attempt to remain as neutral as I can and leave out any biases that I may hold. However, for full disclosure, I’ll probably take jabs at both.

Just to be fair, of course.

First will be an overview of each candidate’s tax policies, and then I’ll do my best to explain what they could mean for you and the country. The intention is not to sway you to vote in either direction. I promise. We will also be working under the assumption that each candidate’s proposals will be passed in their entirety. No compromises in any of the details.

But, let’s first start with what our current policies as a reference.

Current Tax Policies

Obviously, nobody wants to pay taxes. Money flowing straight out of your paycheck for things you may never see or use is a bit demoralizing. For most of us, though, it’s a fact of life. Unless you have the means to eliminate your taxes through loopholes.

*cough* Trump *cough*

Anyway, regardless of your opinion of today’s tax rates, we’re actually living with some of the lowest taxes in the history of the United States. Here’s what they look like today (2016):

Basically, the rate on the far left says at what rate you’ll be taxed, and the dollar amounts in each row will show the amount that the tax applies to. This probably is a bit confusing if you’ve never learned about taxes before, so let’s do an example.

Say you are making $50,000 this year, and you’re filing as single. This will obviously fall between $37,650 and $91,150 in the 25% row. Ignore the instinct to simply multiple $50,000 by 25%. Fortunately, it’s not that easy. I say fortunately because you will actually be taxed less.

You’ll basically work your way down the table, starting from the top. So, for the first $9,275, you’ll only pay a 10% tax. Then for the next bracket (your earnings from $9,275 to $37,650), you’ll multiple the amount that falls between there by 15%. Finally, your $50,000 will end up leaving you with $12,350 that will be taxed at 25% ($50,000 – $37,650 = $12,350).

Here’s the math:

($9,275 – $0) x 10% = $927.50

($37,650 – $9,275) x 15% = $4,256.25

($50,000 – $37,650) x 25% = $3,087.50

Total federal tax = $927.50 + $4,256.25 + $3,087.50 = $8,271.25

Tax calculators online will probably give you a different number because they add in additional factors, but this is the simplest breakdown of how it works. You should be able to plug your own income into this calculation and be able to figure out a rough estimate of your current taxes.

Really, today’s rates aren’t too bad in comparison to the past. The Tax Foundation actually compiled data from throughout our history to show the rates for each year from 1862 to 2013. In 1944, for example, the highest tax rate was 94% and the lowest was 23%. Compared to today’s 39.6% and 10%, that was astronomical. Could you imagine only keeping 6 cents of every additional dollar you made? That’s insane!

Overall, despite all of the complaints you hear today, we don’t have it too bad. However, a new president means that new tax policies are fairly likely, so let’s get to the info you really care about!

Donald Trump’s Proposed Tax Policies

Donald Trump’s most important proposal for most of us is to narrow down the potential tax brackets to only three options. Here is a screenshot directly from Mr. Trump’s website:

To summarize, if you and your spouse file as a couple, you will be taxed 12% on the first $75,000, 25% on anything between $75,000 and $225,000, and 33% on every dollar you earn over $225,000. Keep in mind, though, that that is for married filers. If you’re filing as single, the brackets will have the same percentages, but they’ll be set at $37,500, between $37,500 and $112,500, and over $112,500.

Depending on your income, this may be beneficial to you. Also noteworthy, capital gains taxes (money earned from investments held for more than one year) will essentially stay the same as it is now, but will just be adapted to the three new brackets shown above.

Additionally, Mr. Trump proposes increasing standard deduction amounts for single and married filers. A standard deduction is a flat amount that taxpayers can claim, which will essentially reduce the amount they pay in taxes. Put simply, you subtract your standard deduction from income, and then your taxes are calculated. So, for example, if I’m filing as a single person and I earned $50,000 this year, I would currently be able to subtract $6,300 from that $50,000. My taxable income would then be $43,700. I could then use this to calculate my taxes again based on whatever the tax brackets would be at the time.

Trump’s plan states that standard deductions will be increased from $6,300 to $15,000 for single filers, and from $12,600 to $30,000 for married filers. Using the example from the previous paragraph, only $35,000 of my $50,000 would be taxable. AND, under the new tax brackets I would only be paying 12% on that $35,000. In the end, my federal income tax bill will only be $4,200 out of the $50,000 I earned. If we factor the standard deduction into the example from our “Current Tax Policies” section, our tax bill today would be $6,696.25.

Trump’s plan would be saving our hypothetical person about $2,300 in taxes. That’s just under $200 per month. I don’t think many people would be upset with a couple hundred bucks left over every month.

There are several other updates to the tax code that Mr. Trump is proposing, but unless you’re expecting a multi-million dollar inheritance, itemize over $100,000 in deductions, or own a business, chances are that they won’t have a huge impact on you as an individual. However, if you’re curious, here’s a link to the GOP nominee’s proposals.

On to the next one!

Hillary Clinton’s Proposed Tax Policies

In comparison to Mr. Trump, Mrs. Clinton is pretty much focusing her tax policies on only the wealthy, so honestly, most of it won’t affect the majority too much. I plowed through her website anyway, just to summarize a few things. And, just like in a few other areas of her life, her information is a bit more difficult to find.

To clarify – it’s not actually hidden. Her site just doesn’t show everything on one page. You just need to go through the “Factsheet” for every issue. Maybe it’s just me, but when it comes to things like this, the simpler the presentation, the better.

Anyway, there’s no easy to follow diagrams of her proposals for me to include here, so I’ll just touch on a few points that I think might be more relevant to most of us.

If you’re one of the lucky few that makes over $5 million a year, you’re going to pay an additional 4% in taxes. Considering that only applies to about 1 out of 5,000 people, I’d say chances are low that this will impact you too much. But, if it does impact you, what do you do for a living, and how can someone else do it, too?

Asking for a friend…

Mrs. Clinton also proposes to close a handful of loopholes that the wealthy use, and will also try to ensure that people who earn over $1 million a year will pay at least 30% in taxes. Again, this doesn’t really directly affect the majority of people.

Her plans also include reducing inversions for American companies. Might be useless information for most people, but an inversion is essentially when a foreign company in a country with more favorable business taxes will buy an American company so that those taxes apply to the American company as well. The American company doesn’t really change much, but they will simply pay a lower tax rate. Quite a few people frown on this.

The list of policies gets a little bit less specific after these, but basically she proposes to reduce taxes on small businesses, reduce taxes on working-class families, and use the extra taxes collected from the wealthy to invest in people and jobs. How exactly these will all be done, I’m not sure. To see for yourself, the link a few paragraphs above will take you to her site with this information.

Really, if you’re not a millionaire, Mrs. Clinton’s plan won’t really have a huge impact on you.

The Impact On The Economy?

Before you get too excited (or disappointed) with these policies, we should discuss what it will probably do to the economy.

To be frank, I’m not an economics expert. I don’t have a PhD in economics from Harvard, nor have I ever worked for any type of economic analysis agency. Because of this, I won’t give any of my opinions as to what I think would happen under each candidate.

Donald Trump

First, the projections for Mr. Trump’s policies. If you care more about hearing it straight from the horse’s mouth, here’s the link to the Tax Foundation’s report. Otherwise, keep reading.

His plan will reduce federal tax revenue by between $4.4 trillion and $5.9 trillion over the next 10 years. This essentially means that the government will have less money to spend because they’re collecting less. That’s where your reduced income, business, and estate taxes come into play. However, once economic growth as a result of these cuts are factored in, the reduction falls to somewhere between $2.5 trillion and $3.9 trillion. Still huge, but not quite as bad.

Projections also show that the economy will grow by between 6.9 percent and 8.2 percent, in addition to the already expected growth, over the same 10 year period. Additionally, wages are predicted to grow between 5.4 percent and 6.3 percent in this period, with the addition of roughly 2 million full-time jobs. Sounds pretty good, eh?

Another component of Mr. Trump’s plans will increase the after-tax income of essentially everybody. Unfortunately, if you are already opposed to the widening wealth gap in the US, you probably won’t like the impact these changes have. The Tax Foundation’s projections show that these policies will instantly increase the take-home pay of the bottom 20% of earners by 1.2%. On the flip-side, the top 1% of earners will see an increase of take-home pay somewhere between 10.2% and 16.0%. Huge difference.

So, although everyone would benefit, the wealthy will see significantly higher benefits overall.

In the article, they also explained that they neglected to account for Trump’s foreign policies. It’s pretty difficult to predict the impact relationships between countries will have on our economy. Some of Mr. Trump’s foreign policies are massive overhauls, so these projections might not be even close to accurate. His website has a few brief points, but, as usual, do your research before making any decisions.

Hillary Clinton

Again, here’s the link directly to the Tax Foundation’s assessments of Mrs. Clinton’s proposals. I’d like to think that my writing is at least slightly more interesting, but who am I to judge?

Overall, Mrs. Clinton’s results might not sound so pretty. She is seen as a bit less of a wildcard, though, and her foreign policies don’t represent a drastic change from where we’re currently at. I’m not defending her here, but the fact that we do hundreds of billions of dollars in trade with other countries is a big deal. Minimal changes means we keep this number stable, whereas huge changes could cause it to soar or plummet. It’s risky.

Proposals from Mrs. Clinton are projected to shrink the economy by 1% over 10 years, cause wages to fall by 0.8%, and eliminate 311,000 full-time jobs. Yikes. Based on those numbers alone, I don’t think anybody would vote for her policies. However, that’s not the only factor here. When factoring in shrinking economy, the government will still have an increase in revenue by $191 billion over 10 years.

The government will have more money to spend, albeit not much. Much better than a decrease of $3.9 trillion, at least.

As for after-tax income, only those who fall in the top 10% will see any immediate change. The top 10% will see an average decline of 0.7%, and the top 1% will see an average decline of 1.7%. Surprise! Both candidates’ policies have the biggest impact on the wealthiest people.

I’m sure you’re not actually surprised.

Conclusion

If you’re like me, you’ve been looking forward to the conclusion for a long time. Not for this article, because I’m sure you wish it would never end, but to the election. Obviously, it hasn’t been a pretty one thus far, and I’m a little bit embarrassed that we’ve gotten into this situation, but it is what it is. We’re going to be stuck with one of our two major candidates.

Mrs. Clinton’s tax policies will slightly shrink the economy and wages while helping to slightly increase the government’s revenue. Mr. Trump’s tax policies will create a huge upswing in the economy, but will also cause the government’s revenue to plummet and will likely drive up our debt. Based on these two assessments alone, your economic vote will essentially be for more of the same, or for a massive risk. I’m not sure that most people would like these options.

I really hope that I didn’t sound biased in either direction here. I’m with the roughly 55% of Americans who view either candidate as unfavorable, so if it sounds like I’m leaning one way, it wasn’t intentional.

As always, there is so much more information out there than what I’ve covered here. Do your research, and not just on the financial side of things. Look at all of each candidate’s proposals. Look at who they are as a person. Form your own decisions. The scariest thing about a democracy is that people who literally know nothing about the candidates and policies can vote.

Don’t be an ignorant voter. America needs you.

How do you think either candidate’s policies will affect you personally? What about the economy? Leave a comment below to share your thoughts!